Thai growth, business confidence and the baht suffer, as mass protests in Bangkok over an amnesty bill continue.

Mass public protests have been a regular occurrence in Bangkok over the past couple of weeks, reflecting a backlash against the decision of Thailand’s Lower House to pass a controversial Amnesty Bill on 1 November this year. This contentious draft law, had it been enacted, would have practically granted unconditional “blanket amnesty” to more than 50,000 Thai citizens convicted of committing corruption and political crimes between 2004 and 2013, including Prime Minister Yingluck Shinawatra’s brother, exiled former PM and billionaire tycoon Thaksin Shinawatra.

Given Thaksin’s history of corruption and conflict of interest charges, which preclude him from residing in Thailand, the passing of the Amnesty Bill understandably gave rise to speculations that the Bill would be used to enable Thaksin to return to Thailand and regain his paramount political position, a troubling prospect for many of the people protesting in the Thai capital.

Trying to allay public turmoil and discontent over the Amnesty Bill, Thailand’s Senate unanimously voted to return the bill to the Lower House on Monday, 11 November. This move, however, has not resulted in the desired conciliation of protesters, as tens of thousands of demonstrators still take to the streets of Bangkok on a daily basis subsequent to the Senate’s decision. What started off as a peaceful protest to oppose a government-backed amnesty bill is now on the verge of transforming into a full-blown civil movement directed against the governing regime in its entirety, rather than against the Amnesty Bill.

Anti-government rallies in Thailand are momentous not only because of their destabilising impact on the political system, but also because of the economic ramifications of the political uncertainty engendered by the protests. Thailand’s economic performance, which has been sub-optimal over the last couple of years due to a decline in export growth and an increasing deficit, has been affected adversely by the current political crisis in the country.

A recent report by the Singapore-based DBS Bank has already made significant downward revisions to the bank’s previous projections about GDP growth in Thailand. The bank cuts its 2013 Thai annual GDP growth forecast from 3.8-4.3% (as estimated in August) down to 3%. Assuming civil unrest in Thailand continues over the next year, Thai GDP would grow by only 4% to 4.8% in 2014, compared to an earlier DBS projection of 5-5.1%. In terms of export sector performance, the bank estimates that there will be no aggregate growth in exports this year, as opposed to its earlier prediction of a robust 5% expansion. These trends show the substantial negative impact of mass public protests on both consumer and business confidence in the Thai economy.

Reflecting Thailand’s political turmoil government bonds and the local currency (baht) have depreciated. The baht’s value declined rapidly after investors precipitously started to withdraw their funds from Thai assets at the beginning of November, when mass protests began. According Bloomberg data, since 1 November, the Thai baht has depreciated over 1.5% in the aftermath of increased political uncertainty to 31.6 baht per dollar as of 17 November.

Moreover, heightened stock market volatility prompted global funds to withdraw a net $876 million from Thai equities only within the first week of November, and the value of this capital outflow now significantly exceeds $1 billion, as reported by Sasikorn Charoensuwan, head of research at Phillip Securities (Thailand) Pcl in Bangkok. These developments are somewhat reminiscent of the 1997 Asian financial crisis and raise concerns about the prospect of downward trends affecting other Asian economies.

Consumer confidence has declined, and sector revenues are decreasing, especially in tourism. At 76.6 points, the Thai consumer confidence index exhibits its lowest value in 19 months (since April 2012). Vachira Koonthaweethep, deputy director of the Thai Chamber of Commerce’s forecasting centre, for the most part links this decline to increasing political uncertainty due to the protests, which in turn led to temporary modifications in consumer behaviour, creating a bias towards more short-term aggregate saving and less consumption.

As far as the tourist industry is concerned, Bloomberg’s projections foresee a 5 to 10% fall in foreign arrivals in Thailand (relative to 2012 numbers) by the end of 2013, reflecting the precarious political situation in the country. Decreased revenue from one of the most lucrative sectors in Thailand’s economy suggests even more severe national fiscal imbalances. Losses in tourism will likely exceed 10 billion baht by the end of 2013 (USD 320 million), and could potentially reach as much as 20 billion baht (USD 640 million).

Considering these unfavourable macroeconomic trends, it seems that Thai policy-makers are in a paradoxical position. It is imperative that the Thai government consolidates its political sway to move forward with decisive policy measures and avoid a further deterioration of the country’s near-term economic prospects. For now, however, this scenario is an improbable one, given ongoing national protests and the high likelihood of further escalation of public opposition to Yingluck Shinawatra’s government.